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Full text of "The causes and consequences of the pressure upon the money-market : with a statement of the action of the Bank of England from 1st October, 1833, to the 27th December, 1836"

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Palmer, John Horsley 

The causes and conse- 
quences of the pressure 
upon the money-market. 

;,-. ^.3^. "^.-. l^i>'^X§% 


Digitized by the Internet Archive 

in 2007 with funding from 

Microsoft Corporation 






1st October, 1833, to the 21th December, 1836. 










There is no subject of inquiry more interesting 
and important to the whole community than that 
which relates to the due regulation of our monetary 
system, which has been for many years past in a 
continued state of fluctuation. The principle main- 
tained during the war ending in 1815 has been 
long since exploded, and we are not likely to see 
a second resolution of the House of Commons, 
declaring that a one-pound note and a shilling are 
equal in real value to a guinea of full weight, at a 
time when the paper-money of the country is de- 
IP preciated 12 or 13 per cent. So far have we ad- 
vanced in knowledge ; but some remarkable errors 

A 2 

have pervaded and still continue to influence the 
public mind as to the mode of maintaining the 
value of paper-money. Whether the period be 
now arrived for getting rid of these it may be diffi- 
cult to state ; the subject, however, is one of so 
much interest that the writer of the present obser- 
vations trusts he may stand excused in thus tres- 
passing upon public attention while he attempts to 
develope the principal facts bearing upon the sub- 
ject now under inquiry, that have occurred within 
his observation during the last three years. Some 
good may, perhaps, arise from their promulgation. 
He hopes that it may tend to the amendment of a 
system, which, if persisted in, can hardly fail of 
multiplying all the evils resulting from those varia- 
tions of the currency to which we have latterly 
been exposed. 

The conduct of the Bank of England from the 
year 1819 to the present time is before the public. 
The events which seemed to have led to the panic 
of 1825 were attempted to be explained, by the 
author of this tract, in evidence given before the 
Committee of the House of Commons upon the 
renewal of the Bank Charter in 1832 ; when he fur- 
ther endeavoured to shew that the almost total drain 

of coin from the Bank in December 1825, which 
endangered the credit of that establishment, was 
occasioned solely by the discredit of private paper- 
money, particularly of that part below the deno- 
mination of £5. It was also shewn in that evidence 
that the policy pursued by the Bank subsequent 
to the withdrawal of the £1 and £2 notes in Eng- 
land and Wales, had been to maintain their securi- 
ties as nearly as possible at a fixed amount, and to 
allow the contraction of the currency, effected by 
the return of bank-notes for bullion, gradually to 
proceed until the value of the paper-money remain- 
ing in circulation was so far increased as to occasion 
the return of that specie to the Bank which might 
have been exported, and thus to replace the cur- 
rency upon a level with that of other countries. 
That system had appeared to work satisfactorily and 
without any forced action on the part of the 
Bank in contracting its circulation. It was tried 
upon the change of government in France in 
July, 1830, when credit throughout that king- 
dom was shaken to its foundation. At that period 
the Bank of England was possessed of about 
twelve millions of bullion. Immediately upon the 
events referred to taking place, the currency of 


England exhibited an excess compared with that of 
France and other parts of Europe. The conse- 
quence of that derangement between the currencies 
of this and other countries was a continued dimi- 
nution of the bullion held by the Bank from July, 
1830, to February or March, 1832, when the 
increased value of money in England and the gra- 
dual restoration of credit upon the Continent gave 
a favourable turn to the foreign exchanges ; which 
continued in our favour till the autumn of 1833, at 
which time the bullion in deposit at the Bank 
amounted to nearly eleven millions. At this period 
an exportation of the precious metals again com- 
menced, from causes that will hereafter be explained, 
as well as the reason why that system which ap- 
peared to adjust itself so satisfactorily from 1 830 to 
1832 failed from 1833 to 1836; for, although during 
the former period the bullion in the Bank was dimi- 
nished from twelve millions to five millions, yet in 
the progress of this reduction, as there was no excite- 
ment, and no undue credit given by the banks in the 
interior of the country, the interest of money gradu- 
ally rose from 2^ to 4 per cent, per annum for first- 
rate commercial paper ; and then, without discredit 
or distrust of any kind, the bullion returned into the 

coffers of the Bank, and money nearly resumed its 
former value, the rate of interest having gradually 
fallen from 4 to 2f per cent, in July, 1833. 

But before proceeding further, it is necessary 
to allude to the rise and progress of Joint- 
Stock Banks in England, Wales, and Ireland. 
Scotland having, fortunately for that part of the 
empire, kept itself free from the mania for the 
extension of these companies, it is unnecessary 
particularly to allude to the proceedings of its 

Immediately subsequent to the panic of 1825, 
vs^hich affected almost every banking establishment 
in London as well as the country, the Government 
of that day was unfortunately induced to call upon 
the Bank of England to relinquish, beyond sixty- 
five miles from London, its exclusive privilege as 
to the number of partners authorized by law to 
be associated for the formation of Banks, in order 
to enable Ministers to frame regulations authorizing 
the establishment of Joint-Stock Banks throughout 
all parts of the country beyond the limit above 
specified, thereby virtually declaring that the exist- 
ing private banks were unworthy of credit. The 
term "unfortunately" is used; for perhaps there 

never was a measure more uncalled for by the wants 
of the community. The existing system was 
intimately connected with the prosperity of the 
country, and was good in all its parts, excepting 
the power of issuing paper-money ad libitum. 
The change in question laid the foundation of a 
new system to be brought into the field by com- 
petition in the issue of paper-money, the most 
prejudicial means that could be devised. A reluc- 
tant concession was obtained from the Bank ; and 
in order to place the whole subject before the 
public, the correspondence which then took place 
between the Government and the Bank is annexed 
to the present statement. Very little progress was 
made in the formation of those projected institutions 
prior to the year 1830, when a further application 
was made by Government to the Bank for conces- 
sions intended to have formed part of the con- 
ditions at that time for the renewal of the Charter. 
The opinion of the Bank remained unchanged as 
to the danger to be apprehended from the exten- 
sion of the system of Joint-Stock Banks, and 
this opinion was pressed upon the Government 
at that period. The Ministry under the Duke of 
Wellington having soon after been dissolved, no 


further discussion of the subject took place until 
the negotiation under the Government of Earl 
Grey, which terminated in the renewal of the 
Charter of the Bank in 1833. Pending the 
discussions which then took place the strongest 
representations were verbally made to Earl 
Spencer (then Chancellor of the Exchequer), 
of the necessity of placing Joint-Stock Banks of 
Issue under some regulations to be proposed by 
His Majesty's Government, which might tend to a 
prevention of excess in their issues of p?per-money. 
It is well known that that noble Lord was desirous 
of submitting such regulations for the considera- 
tion of Parliament ; but these he was prevented 
from carrying into effect. The system of Joint- 
Stock banking was further facilitated by permitting 
the formation of direct agencies in London ; and a 
declaratory clause was inserted in the Bank Char- 
ter Act authorizing the establishment of those 
bodies in the metropolis. It is conceived that the 
Bank had the more reason to complain of the 
Ministers' proceeding upon that occasion, it having 
been distinctly understood during the negotiation, 
that the law affecting the formation of Banks within 
sixty miles of London should remain untouched, and 
upon the faith of that understanding Earl Spencer 


undertook to bring the Bill into the House of Com- 
mons for the renewal of the Charter of the Bank. 

Having thus briefly stated the proceedings which 
have occurred in the establishment of Joint-Stock 
Banks prior to the renewal of the Charter of the 
Bank of England, it may, perhaps, be proper to 
state the periods of the increase of those of Issue 
from the year 1826 : they are as follow, taken 
from returns furnished by the Stamp-Office. 


1836, from 1st January to 26th November 

established • 3 













There were formed prior to 1 834 3 

In 1835 2 

1836 8 



Until the year 1833 the action of the Banks, as 
alr-eady stated, appears to have been perfectly 
regular. From that period the increase in the 


number of Joint-Stock Banks, in England and 
Wales, to the 26th November last, has been seventy- 
two, and in Ireland ten, making an aggregate of 
eighty -two, exclusive of their innumerable branches 
formed in almost every town in the two kingdoms, 
which are, in fact, equivalent to so many additional 

It next remains to be shewn what was the amount 
of paper-money in circulation in England and 
Wales, and Ireland, other than that issued by the 
Banks of England and Ireland. The average in 
England and Wales on the 29th March, 1834, 
was £10,200,000, and in June, 1836, £12,200,000. 
In Ireland the average in June, 1834, was £ 1 ,300,000, 
and in June, 1836, £2,300,000. In both cases 
the greatest extension took place within the last 
year. It thus appears that there was a total increase 
in this portion of the paper-money of the two king- 
doms, in 1836, over 1834, of no less than three 
millions, or more than 25 per cent. 

There was no material fluctuation in the circulation 
of the Bank of Ireland; it therefore is only requisite 
to state the particulars of the issues of the Bank 
of England at the two periods referred to. 

The liabilities and assets of the Bank on the 


1st October, 1833, upon an average of the three 
preceding months were, — 

Circulation £19,800,000 

Deposits 13,000,000 

Securities £24,200,000 

Bullion 10,900,000 

On the 27th December, 1836, the bullion upon a 
similar average vv^as £4,300,000, shewing a re- 
duction of £6,600,000. The circulation was then 
£17,300,000, and the deposits, excluding those 
of a temporary character (4| millions), were 
£9,200,000 ; the diminution of the two, taken 
together, having been £6,300,000, the difference 
between this amount and the loss of bullion being 
found in the increase of securities held by the 

In every quarter succeeding the 1st October, 
1833, with two very trifling exceptions not worth 
notice, the reduction in the circulation and deposits 
was larger than the progressive diminution of bullion 

It may here perhaps be as well to explain the 
nature of what are termed extra deposits, in order 
to shew that they are independent of the regular 
working of the Bank. They have consisted of 
money belonging either to Government or the 
East India Company, altogether independent of 


their ordinary transactions. The first arose out 
of the contract for the West India Loan, upon 
which a discount was allowed for prompt payment 
higher than the market rate of interest; and as 
the prompt payments thus made were not required 
for issue to the West India claimants for several 
months afterwards, it became necessary, in order 
to preserve the currency in the same state as if 
the payments for the loan had not taken place, 
and to prevent its undue contraction, to re-issue the 
money to the public. This was done by contract 
with the money 'dealers, so as to ensure its return to 
the Bank at the time of the adjustment being made 
with the claimants by the Commissioners. It ought 
further to be borne in mind, that during the whole 
period of those loans the foreign exchanges were 
high, increasing the quantity of gold in the coffers 
of the Bank to a considerable extent — a circum- 
stance which would have rendered it quite unjusti- 
fiable for the Bank to have permitted a contraction 
of the currency by the prompt payments on account 
of the Loan, and an advance in the rate of interest 
to have been thus unnecessarily and forcibly effected 
to the detriment of the commerce of the country. 
The second case was that of the East-India 


Company realizing their commercial assets to an 
extent far exceeding their ordinary wants for pay- 
ment. Upon the commencement of the accumula- 
tion, to the extent of £600,000 or £700,000 above 
their ordinary balances, an application was made to 
the Bank to ascertain whether it would undertake the 
risk of lending the money, paying to the Company 
a given rate of interest ; if declined, the Company 
were prepared to lend it themselves, having re- 
ceived offers from some of the principal money- 
dealers to take it. The question, therefore, simply 
was, whether the notes should be paid away by the 
East-India Company or the Bank ? It never could 
be expected that the Bank should be required to pay 
a rate of interest for notes or bullion belonging to 
others, merely for the sake of keeping them unem- 
ployed : having at the same time no excess beyond 
the 24 J millions of securities, which the ordinary 
working deposits and circulation entitled that body 
to hold. Hence it is evident, that in the first case 
the Bank was, for the benefit of commerce, re- 
quired to reissue the monies received on account of 
the West-India Loan, and that in the second, if the 
Bank had not consented to advance the money, the 
East-India Company would have lent it themselves. 


The only point, therefore, was one of management, 
viz. to keep the currency from undue fluctuation, 
and to insure the return of the notes from the 
market at the periods when the Government and 
the Company required them for issue in the same 
direction, which was effected to the letter. 

The contraction of Bank-notes, exhibited in the 
comparative statement, between October, 1833, and 
December, 1836, applies to the aggregate circu- 
lation of the Bank, both in London and the country, 
whereas that of London alone ought to be brought 
under review. It will appear, from the following 
account, that the contraction has been in London 
three millions from the amount in circulation in 
October, 1833, which with the deposits makes the 
actual reduction of the London liabilities £200,000 
more than the diminution of Bullion exhibited 
in the quarter ending December last. The sub- 
joined statement embraces the separate issues in 
London and the Branch Banks every quarter, from 
October, 1833, to December, 1836, each return 
being calculated upon the average of the thirteen 
preceding weeks. It will be thus seen that the 
increase of the Branch Bank issues was virtually so 
much withdrawn from London, the Bank not having 


increased its amount of securities previously exist- 
ing until the quarter ending 27th September last, 
when the pressure was commencing consequent 
upon the advance in the rate of interest. The 
object of this account is to shew that every means 
were taken by the Bank to prevent its being charge- 
able with an over-issue. On the contrary, the 
increase of issue by the Branch Banks having been 
occasioned by agreements, substituting their notes 
for those of Country Banks withdrawn, shews, that 
to that extent an earlier contraction was effected in 
London than would otherwise have taken place. 
It further shews that the amount of Country Bank 
issues withdrawn, places the excess of the other 
issuing bodies in a still more unfavourable light by 
very nearly half a million. 

Oct. 1. London 16,500,000 

Branch Banks 3,300,000 


Dec. 31. London 15,000,000 

Branch Banks 3,200,000 



Apr. 1. London..... 15,800,000 

Branch Banks 3,200,000 



July 1. London 15,700,000 

Branch Banks 3,200,000 


Sept. 30. London 15,800,000 

Branch Banks 3,300,000 


Dec. 30. London 14,800,000 

Branch Banks 3,300,000 



Mar. 31. London • 1 5,200,000 

Branch Banks 3,300,000 


June 30. London 15,000,000 

Branch Banks 3,300,000 


Sept.29. London 14,900,000 

Branch Banks 3,300,000 


Dec.29. London 13,800,000 

Branch Banks 3,400,000 



Mar. 29. London 14,400,000 

Branch Banks 3,600,000 


June 28. London 14,200,000 

Branch Banks 3,700,000 


Sept. 27. London 14,500,000 

Branch Banks 3,600,000 


Dec.27. London 13,500,000 

Branch Banks 3,80(^000 




Having thus stated the action of the different bodies 
through which the extension and contraction of the 
paper money of England and Ireland have been 
effected from the year 1833 to the present time, it 
may be now expedient to shew the causes which 
appear to have occasioned the reduction in the cir- 
culation of the Bank of England. It is the more 
important to submit these causes to the 'notice of 
the public, as they seefn in Wo degree to have arisen 
from overtrading or ai^y undue speculative advance 
in commercial prices : occurrences of that nature 
tend to produce an unfavourable foreign exchange, 
an evil only to be remedied by that contraction of 
the circulation which eventually restores prices and 
currency to a level with those existing in foreign 
countries. If, therefore, upon reference being 
made to the state of the foreign exchanges during 
the period to which the inquiry relates, it be 
found that no material derangement existed, our 
attention is naturally directed to the consideration 
of the other causes that have occasioned the 
demand upon our metallic currency. In order to 
establish the position that the commercial exchanges 

were not against England, it may be right to 

refer to the increase or decrease of gold at the 


Bank, from which alone any correct inferences are 
to be drawn as to the state of our currency in com- 
parison with that of foreign countries. 

The first period may betaken from October 1833, 
to April 1835, during almost the whole of which 
time there was a continued purchase of gold by 
the Bank, at £3 : 17 : 9 per oz. ; the exchange on 
Paris never fell below 25.35 for short paper, and the 
premium upon gold remained in Paris at about 
'9 per mille, thus shewing that during that period 
there was no demand upon the Bank for bar-gold, 
and no profit upon the export of that metal or the 
gold coin of the realm. 

The second period was from April 1835 to 
April 1836, during the whole of which time the 
foreign exchanges were considerably higher than 
during the preceding eighteen months, and conse- 
quently the influx of gold correspondingly in- 
creased at the Bank. 

The third and last period is that from April to 
December of the past year, during the whole 
of which time the foreign exchange on Paris was 
seldom under 25.35 ; the premium upon gold, 
however, was for a short time as high as 13 and 
14 per mille, which occasioned a loss of about 

JB 2 


£100,000 of the Bank's stock of gold bullion, an 
amount too trifling to establish the fact of an unfa- 
vourable commercial rate of exchange. 

With this statement of the actual bearing of the 
foreign exchanges upon the gold currency of the 
country, it may perhaps excite some surprise as to 
the mode in which the large reduction in the 
bullion held by the Bank was effected, and which 
in its consequences, from that body haying been 
governed by the principle laid down in the evidence 
of 1832, ought to have had the same effect upon 
the general currency of the empire, as if the reduc- 
tion had been occasioned by any cause other than 
that from which it is believed to have arisen. The 
principle referred to was stated to be the retention, 
so far as practicable, of a fixed amount of secu- 
rities ; and in proof of such having been the course 
pursued, the following account will shew that the 
securities which stood at about twenty-four millions 
and a quarter in October 1833, upon an average of 
the three preceding months, did not subsequently 
exceed that amount until the recent pressure com- 
menced upon the money-market, which was further 
increased by the discredit in Ireland causing a 
demand upon the Bank, direct and indirect, for 
nearly a million of sovereigns. 


The securities in possession of the Bank, ex- 
cluding those held temporarily with the extra 
deposits, were upon the average of the quarters 

1833.— 1st October .... - £24,200,000 

SJstDecember 23,600,000 

1834.— 1st April 23,500,000 

1st July.... 22,600,000 

30th September 24,900,000* 

30th December 23,400,000 

1835.— 31st March 25,100,000* 

30th June 23,800,000 

29th September 22,900,000 

29th December ........ 22,000,000 

1836. -29th March 24,000,000 

28th June 22,600,000 

^ „ 27th September 24,800,000 

27th December 25,000,000 

The publication of the liabilities and assets of 
the Bank in January, and those which will follow 
in February, will shew a further increase of secu- 
rities (excluding those appertaining to the extra 
deposits), and according to the principle laid down 
in the evidence referred to, the rate of interest 

• The excess in these two quarters was occasioned by an in- 
crease in the deficiency Bills. 


ought to have been advanced by the Bank in order 
to throw back that excess upon the market. It is 
submitted, however, that we have not been placed 
in ordinary circumstances since the discredit which 
occurred in Ireland. In consequence of that event 
there was in the first instance an undue return of 
Bank of England notes for coin, and secondly, it 
is believed that in this country, from apprehension 
of consequences, a much larger amount of Bank- 
notes has been and still is retained in reserve by 
bankers generally, than they are ordinarily in the 
habit of holding. At any rate it is evident that 
the additional issue by the Bank has not caused 
any foreign demand for gold,* and unless that be 
exhibited, the Bank ought not, under circumstances 
of an unnatural pressure, strictly to enforce the 
principle laid down. In thus offering an individual 
opinion, the writer does not presume to say what 
course the Bank may either now or hereafter feel it to 
be a matter of obligation to adopt. We must keep in 
mind that England is the centre of the whole com- 
merce of Europe and America, if not the world, 

* No foreign demand or export of gold, deserving* of notice, 
has taken place since 1st September last. 


and any hasty or unnecessary step taken, will not 
only affect the credit and prices of this country, 
but to a certain degree those of all parts of th^ 
Continent, from whence we are to obtain that 
bullion which we have lost. The causes of that 
loss, so seriously affecting the credit and com- 
mercial transactions of the country,^ demands the 
closest investigation. The fall in price of al- 
most all the leading articles of raw produce 
(sugar, coffee, tea, silk, cotton, piece goods, metals, 
drugs, &c.) from the 1st July last, when the rate 
of interest was first advanced, has not been less 
than from 20 to 3.0 per cent. 

The securities published in the Gazette read 
higher than the amounts stated in the preceding 
paragraph, in consequence of the extra deposits 
placed temporarily with the Bank either by Govern- 
ment or the East-India Company ; but these, as 
already explained, were advanced, under peculiar 
circumstances, in a way to insure their return at 
such times as the Government or the East-India 
Company might require the money.'^ 

* The average extra deposits in possession of the Bank on 
the 27th December last were about A\ n^illions, which were 


Allusion has already been made to the effect 
upon the currency from a deranged state of 
commercial prices between this and foreign coun- 
tries. It must be evident to every one reflecting 
upon the subject, that similar effects may be pro- 
duced by employing capital in speculative loans to 
foreign powers or investing it abroad at a higher 
rate of interest than the securities of this country 
may afford. This, it is obvious, may occasion large 
and sudden foreign payments without any reference 
to the exchanges. And it is to payments of that 
character that we may attribute the loss of bullion 
w^hich took place from October 1833, to April 
1835, and to vs^hich the public attention should 
be directed, that remedies may be devised for 
mitigating the evil, which must otherwise attend 
similar transactions hereafter. 

Notwithstanding the cry of distress which has 
from time to time prevailed for some years past, it is 
notorious that the capital of individuals, at least in 
every manufacturing and commercial department, 

lent upon securities redeemable in January of this year, when the 
East-India Company required their funds to meet the bills drawn 
from India then falling due. 


has been and still is steadily upon the increase. 
The evidence of that advance is seen not only in 
every town throughout the kingdom, but we are 
also daily witnessing the extension of every branch 
of commerce and manufactures, which can only be 
attributed to the constantly growing capital of the 
country. Without meaning to impugn the state- 
ments, which have been put forward, or doubt- 
ing the severe pressure, which has existed, and 
in some cases may still exist in adjusting the rela- 
tive position between landlord and tenant, or the 
heavy depreciation which has taken place, since 
the close of the last war, in the value of all pro- 
perty vested in shipping, it is extremely question- 
able whether in both those cases, hard as it may 
have been upon the parties directly interested in 
them, the pressure has not been wholly irreme- 
diable. It originated in the altered circumstances 
of the country subsequently to the peace of 1815, 
and could not be prevented by any legislative mea- 

Assuming, therefore, that a great increase of 
capital is continually going forward, it is but 
reasonable to expect that a portion of that accu- 
mulation should seek investment in foreign secu- 


rities from the higher rate of interest that they 
afibrd over those of our own country. The facili- 
ties of making such investments began with the 
peace of 1815, when the system of foreign loans 
contracted and made negociable in London com- 
menced. That system has been extended to almost 
every state both of Europe and America, nor does 
it appear to have been attended by any prejudicial 
effects when not subject to excessive speculation. 
On the contrary, looking to the constant accumu- 
lation of capital, such contracts as offer opportuni- 
ties for gradual and moderate investments have 
proved beneficial to the commerce of the country, 
the amounts having in such cases been generally 
transmitted either in colonial produce or manu- 
factures. It is not therefore the ordinary invest- 
ments in foreign securities which are open to ob- 
jection, but that speculative action so greatly facili- 
tated by our foreign stock-market in the establish- 
ment of a system of gambling ten times more pre- 
judicial to the interests of the country, than that 
which has for years past existed in the dealings in 
our own funded debt. In the first the receipt or 
payment becomes, not unfrequently, one of foreign 
settlement, thereby directly acting upon our currency. 


The second almost exclusively attaches to English 
residents, and the balance is consequently finally 
adjusted at the clearing-house in Lombard-street. 

The speculative action here alluded to, and 
pertaining to the present enquiry, originated in 
the loans to Don Pedro upon his first attempt 
to recover the throne of Portugal. The money 
advanced effected the overthrow^ of Don Miguel, 
and upon that overthrow^ followed the speculative 
mania in the foreign stock-market. More loans were 
contracted in aid of Donna Maria, and provided the 
contractors could only secure their agency and com- 
mission, the public were left to take care of them- 
selves. The rage for speculation being further 
excited by the popular idea of overthrowing 
absolutism and establishing liberal Governments 
throughout the Peninsula, Spain came in for her 
share of the plunder obtained through English cre- 
dulity. These loans were going forward from 
July, 1833, until towards the end of 1834, when the 
profit realized upon the daily extending engagements 
in the Foreign Stock-market engendered a further 
spirit of speculation in almost every kind of previ- 
ously neglected South American, Spanish, and 
Portuguese bonds, causing an enormous advance 


in all, and in some nearly 100 per cent. In short, 
until the spring of 1835 hardly a packet arrived 
from the continent which did not come loaded 
with every sort of foreign securities for reali- 
zation upon our Foreign Stock-Exchange. During 
that period, and through the means here re- 
ferred to, the bullion and coin held by the Bank 
in October, 1833, was reduced by the sum of 
£5,100,000, effected by £2,900,000 silver sold, 
and £2,200,000 sovereigns exported. It may 
perhaps be maintained that the sale of silver 
by the Bank was the means of preventing a 
further export of gold, that otherwise would 
have taken place, and that there is no proof of 
the export of bullion having been occasioned by 
the operations upon the Foreign Stock-market. In 
reply it may be stated that not only the demand for 
the silver and export of the sovereigns originated 
and continued during the mania alluded to, but 
further, that that demand ceased the moment the 
reaction took place in May, 1835, when a panic 
seized the dealers in foreign securities, causing 
their prices to fall with far greater rapidity than 
they had risen. In the progress of the con- 
traction, which ensued upon the diminution of the 



bullion held by the Bank, the market rate of interest 
gradually advanced for first-rate commercial paper 
from 2^ to 3i per cent, per annum, which may be 
quoted as having been its value in May, 1835; at 
that time there was no material increase in the 
paper-money circulation of the interior, conse- 
quently, immediately upon the discredit taking 
place, the export of gold ceased and the foreign 
exchanges further advanced, bringing back the 
major part of the gold which had been exported in 
the preceding eighteen months, thereby clearly 
shewing that the currency was not redundant. 

The reduction which took place in the bullion of 
the Bank from April to September last is that to 
which it is now necessary to advert. The dimi- 
nution amounted to £2,600,000, and was effected in 
the following manner ; — 

£200,000 amount of Silver sold. 
100,000 „ Gold do. 

2,300,000 „ Sovereigns, supposed to 

have been exported to America. 

In order to explain the cause and origin of the 
American demand, it may be proper to advert to the 
' proceedings in America for the two preceding years. 


The avowed hostility of the President, Jackson, to 
the renewal of the Charter of the Bank of the United 
States terminated, after a violent struggle, in com- 
pelling that Institution to prepare for closing all its 
transactions in 1 836, and for repaying that portion 
of its capital that belonged to Government. In 
order, however, to increase the embarrassment of 
the Bank, measures were taken for removing from 
its custody the deposits of public money, and for 
placing them in the hands of various States' Banks, 
under condition that they should be prepared to 
pay a given portion of all demands upon them in 
gold coin. To facilitate this object. Congress passed 
a law reducing the quantity of fine gold in the 
Eagle, the equivalent of ten dollars, from 246 to 
232 grains. This depreciation of the American 
gold coin had the effect of raising the current 
value of the English sovereign from 4.44 dollars to 
4.874:, or 8f per cent, above its previous current 
value. Simultaneously with and in aid of these 
measures several of the States were persuaded to pro- 
hibit the circulation of notes of less amount than 
five dollars. In taking these measures it was 
an avowed object on the part of the President to 
endeavour to establish a gold currency in conjunction 
with silver throughout the Union. The hostility 


evinced towards the Bank of the United States, and 
the refusal to renew its Charter caused an immedi- 
ate contraction of the usual accommodation granted 
at the numerous branches of that Establishment, and 
further, entailed upon the favoured States' Banks the 
necessity of procuring an additional supply of gold 
to enable them to fulfil the conditions under which 
they received the deposits of Government money. 
This combination of circumstances, having no re- 
lation to the ordinary commercial transactions exist- 
ing between this country and America, materially 
reduced the rate of exchanges with Europe, so 
much so as to afford a profit upon the importation 
both of gold and silver from England and other 
parts of Europe. The President, too, in order further 
to aid his favourite project of increasing the metal- 
lic currency throughout the States, directed, in the 
early part of last year, his agents in Europe to 
remit in gold to America the whole of the indem- 
nity money to be received from France and Naples. 
About the time of that remittance having been 
made, a loan for a million or twelve hundred thou- 
sand pounds was negociated in London on account of 
ihe United States' Bank to facilitate the settlements 
upon the expiration of the Charter. The effect of 


that loan upon the currency of this country was 
further increased by a much larger amount than 
usual of American securities, or of States' stock, 
bank and canal stock, &c. having been sent to 
Europe for sale, and upon which credit had been 
given by some of the principal houses in England 
in anticipation of the sums they were expected to 
realize, thus throwing an inordinate amount of 
American paper upon our markets. If all these 
circumstances be adverted to, together with the very 
large amount of produce imported from America, 
the surprize will be, not that some, but that so 
small a portion of bullion should have been ab- 
stracted from England as that already stated. 
Since the 1st September last the demand has 
entirely ceased, and notwithstanding the desire of 
the American President to retain the bullion 
acquired from this country, it is not improbable 
that we may soon see it return from that quarter 
of the world. 

Having thus endeavoured to explain the causes 
which have operated to reduce the bullion of the 
Bank during the last three years, it becomes 
desirable to shew why it is that the contraction of 
the circulation of the Bank has affected private 



credit more than in 1832, when a similar loss of 
bullion and contraction of the Bank's engagements 
were exhibited. The difference between the two 
periods appears to have been occasioned by the 
altered state of private banking in the interior of 
the country. In the first, there was no particular 
excitement either in England or Ireland, nor any 
excess in the issues of provincial paper. In the 
second, both countries teemed with competition 
created by the additional establishment, as previ- 
ously stated, within the short space of two years, of 
not less than seventy-two Joint-Stock Banks in Eng- 
land and Wales, and ten in Ireland, with their innu- 
merable branches in almost every town throughout 
the two kingdoms. It is needless to attempt to de- 
scribe the competition that grew out of this exces- 
sive multiplication of banks : its effects were exhi- 
bited in a great and undue, and even rash extension 
of paper-money and credits, accompanied by an un- 
usual reduction in the rate of interest in the interior 
of both countries, but particularly in Ireland : the 
commonest observer must have seen the gathering 
clouds, and dreaded the consequences. 

These circumstances at length attracted the atten- 
tion of Parliament. The volume of evidence, taken 


before a Committee of the House of Commons, and 
published since the close of the last session, must 
satisfy every unprejudiced mind of the danger attend- 
ing the continuance of such a system. Suffice it here 
to say, that the influence which should have attend- 
ed the contraction of Bank of England paper arising 
from the export of bullion, was counteracted by the 
imprudent facilities of credit and cheapness of money 
occasioned by the proceedings of the Issuing Banks 
in the interior of England and Ireland. Upon the 
publication in the Gazette of the issues of the Joint- 
Stock and private banks of England and Wales in 
the early part of last July, an increase of 25 per 
cent, of their issues was exhibited, above the amount 
existing in March 1834, while the circulation of 
the Bank of England had been diminished nearly to 
the same extent. The increase in the issues of the 
Joint-Stock Banks of Ireland, though not published, 
has since been ascertained to have greatly exceeded 
in proportion that exhibited in this country. 

In order more clearly to explain the nature of 
the reduction in the circulation of the Bank of 
England, it should be stated that a considerable 
proportion of what are termed deposits in the Bank 
accounts ought to be considered as part of the 


Bank-notes issued, being no other than notes 
waiting a demand for employment, and belonging 
to London bankers and others. Whether, there- 
fore, these notes remain for a time in the posses- 
sion of the Bank, or whether they remain in th^ 
possession of the parties to whom they belong, is 
really the same thing, the only difference being in 
the mode of stating the account. As nearly as can 
be ascertained the amount of deposits coming under 
the description here alluded to, may vary from three 
to four millions. But we are not, as has some- 
times been done, to confound this portion of the 
deposits with the other and much larger portion 
that is lodged with the Bank for security only, and 
without being intended to be speedily withdrawn 
or to be operated on by checks or otherwise. To 
contend that this portion of the deposits should be 
considered as currency is equivalent to contending 
that the bills and bonds belonging to individuals 
and locked up in their strong box are part and 
parcel of the circulation. They may be money in 
posse y but they are not money in esse, and have no 
more influence over the currency than the gold or 
silver buried in the bowels of Mexico. But to 
return : — 

c 2 


Adverting to the excess of the country 
issues, and looking to the race running with in- 
creased violence in Ireland as well as England, 
the Bank was fully justified in attempting to arrest 
the evil which might attend a continuance of the 
export of bullion from the redundancy of money, by 
making an advance in the rate of interest in London 
and at the Branch Banks. In fact, the only ques- 
tion about which there can be any real difficulty is 
whether she ought not to have taken this step 
somewhat earlier. To have acted, however, in 
anticipation of events likely to occur, would have 
been in direct violation of that principle upon which 
the Bank professed to be guided, and which Parlia- 
ment had tacitly sanctioned. It would moreover 
have established a precedent and imposed future 
responsibilities upon the Directors, which it is 
questionable whether they should ever incur, 
either upon their own account or that of the pub- 
lic. The Bank acted precisely as any Board of 
Commissioners empowered solely to issue notes for 
bullion would have done, and can in no way be 
chargeable with the consequences. 

The large amount of money deposited at interest 
with the Bank by the East-India Company for a 


limited period, and which was lent to the money-dea- 
lers in London, afforded considerable facilities for 
rendering the rise in the rate of interest immediately 
effective ; the object was not one of profit to the 
Bank, but to enforce that contraction and to esta- 
blish that general rate of interest, which, but for the 
undue increase of the issues of the Joint-Stock 
Banks and others in England and Ireland, should 
have followed the export of bullion. The course thus 
taken by the Bank was, in the first instance, coun- 
teracted by the other issuers of paper-money in Eng- 
land, Ireland, and Scotland, The demand for bul- 
lion continuing, the Bank further advanced the rate 
of interest in August to £5 per cent, per annum, 
which forced additional securities upon many of 
those country-banks that adhered to a lower rate. 
Their surplus funds in London being soon absorbed, 
they all eventually adopted the rate of interest 
established in London. There was, however, an 
effect created by this act on the part of the Bank 
far more powerful than the actual advance in the 
value of money. It was a moral apprehension in all 
prudent minds that there was mischief abroad ; and 
those who had been promoting and applauding the 
action of the Joint-Stock Banks began to doubt 


the solidity of the system. The feeling so created 
was probably further extended by the publication 
of the evidence already alluded to. The conse- 
quence of this altered state of confidence was first 
shewn in Ireland, where the competition had assumed 
a more violent character than in England ; a run 
upon all the Joint-Stock Banks in that part of the 
Empire ensued, which terminated in the stoppage 
of the Agricultural. The direct effect of that dis- 
credit upon the Irish banks was an immediate drain 
upon the Bank of England and its branches of 
nearly one million of sovereigns, obtained by the 
return of notes to that amount. None of these 
banks having been previously provided with coin 
or the direct means of obtaining it, the only mode 
of getting possession of it was by forced sales of 
securities in London. A moment's reflection will 
shew the derangement in the London circulation, 
necessarily consequent on such proceedings, as well 
as the difficulty under which the Bank is placed 
by the total want of coin or bank-notes on the part 
of issuing banks, to uphold the credit of their circula- 
tion. It may be assumed as a fact that profit is 
their only object, and that not a single issuing 
bank in England, Ireland, or even Scotland has ever 


been provided with bank-notes or coin adequate to 
meet a demand upon their respective liabilities. 
Their assets beyond the ordinary wants of their 
customers are all vested in securities bearing 
interest, trusting to the realization of those securi- 
ties in bank-notes in case of need, which, thus 
abstracted from the public market, either inflicts a 
most inconvenient pressure upon London, or, in 
order to prevent that pressure, the Bank is required 
to re-issue the amount of notes, so cancelled, with- 
out reference to the bullion in its possession. It is 
perfectly immaterial whether banks of issue retain 
their just proportion of reserves in Bank of Eng- 
land notes or coin, but one or the other it is sub- 
mitted that they ought to be compelled to retain 
with reference to their liabilities, or to abandon the 
issue of notes, the upholding of which, under dis- 
credit, becomes a source of difficulty and danger 
to the public at large, as well as to the Bank of 
England. In the late instance the discredit fortu- 
nately extended no farther than Ireland, but the 
apprehension of what might ensue in England 
occasioned a considerable abstraction of bank paper 
from London by the issuing banks of the country, 
which to that extent so far encreased the pressure 


of contraction — and was the principal cause of 
the pressure upon the money-market, which is 
the first head of the present enquiry. In such 
times it is not only the contraction of money 
which constitutes the evil, but the consequence 
which invariably ensues of timidity on the part of 
bankers generally, to grant their customary accom- 
modation, and of those situated in the more distant 
parts of the country accumulating and locking up 
reserves three or four times greater than they retain 
under ordinary circumstances. 

Much has been said and written by parties con- 
nected with a portion of the daily press as to the 
impossibility of maintaining a paper-money circu- 
lation convertible into gold coin of a given standard. 
There is no intention of entering at present upon the 
discussion as to whether silver or gold would origi- 
nally have been the better metal to adopt as our 
standard of value. Gold was determined upon, 
and that is the only question we have now to deal 
with. It may be true, though there is no evidence 
of the fact, that gold fluctuates more in value than 
silver ; but there does not appear to be any diffi- 
culty in maintaining it as our standard, subject 
at times to some temporary inconvenience in rela- 


tion to the currencies of other countries, pro- 
vided the issue of paper-money be duly regu- 
lated. Under the system which now exists, em- 
bracing a total amount of bank-paper circulation 
in Great Britain and Ireland of about forty-five mil- 
lions, the half of which may be assumed to be un- 
protected by an adequate reserve of either Bank of 
England notes or coin, it certainly is impossible to 
insure the convertibility of paper even for foreign 
payment; nothing can guard against the effects of 
mismanagement and consequent excess by such a 
numerous mass of issuing bodies as overspread the 
empire. If, however, the amount of paper-money be 
limited, and it be issued by one body, with an ade- 
quate reserve of bullion expanding and contracting 
as the currency may fluctuate in value with refe- 
rence to foreign countries, there could be no difficulty 
in preserving it against depreciation for all pur- 
poses of foreign payment. If paper-money ever 
become discredited by any internal political convul- 
sion, it can then only be upheld by the power of 
Government — and in such times it becomes the 
duty of the Ministers of the Crown to undertake 
the responsibility of upholding public credit. For 
relief against commercial discredit the issuing body 


should be so formed as to be able to afford 

With reference to the past action of the Bank 
there is no reason to doubt that the value of the 
currency would have been maintained without oc- 
casioning any severe pressure upon the money- 
market had the countervailing issues by other bodies 
not occurred ; still if there exist any well-founded 
reasons for supposing that the principle explained in 
the evidence of 1832, and acted upon by the Bank, 
is not sound — or that the proportion of one-third of 
bullion with reference to the liabilities of the Bank 
at the period of a full currency be not sufficient, it 
merely remains for Parliament to express an opinion 
upon either of those points, and there can be no 
question but that the Bank will immediately regulate 
its course accordingly. The principle referred to was 
never intended to apply under any extraordinary 
events that might arise. In such times it would be- 
come the duty of the Bank to reduce their securities 
without delay, and thus to increase the relative 
proportion of bullion to their liabilities prior to the 
commencement of a foreign demand, which in such 
altered state of circumstances might be expected 
to occur. 



Having thus endeavoured to show the rise and 
progress of the contraction in the circulation of the 
Bank of England, which has terminated in the 
pressure upon the money-market, it remains to be 
considered what are the consequences likely here- 
after to ensue from a continuance of the present 

Assuming that the main cause of the pressure 
w^as occasioned by the counteracting effect of the 
issues by other bodies, promoted in no common 
degree by the inordinate multiplication and compe- 
tition of the Joint-Stock Banks throughout England 
and Ireland, it may be worth while to allude to what 
may be supposed to have led to the opinions 
formed in 1825 by the Government of that day 
in favour of those institutions. 

The consideration of the Joint-Stock system had 
been, for some time prior to the year 1825, forced 
upon public attention by the many failures which 
had taken place subsequently to 1810 in private 
banking establishments, amounting to more than 
one hundred and fifty : and as about eighty private 
banks suspended their payments in 1825, the 
Government thought themselves then called upon 


without further delay to endeavour to change the 
system altogether — a sound system of banking being 
an object of the highest importance to the whole 
community. The view taken by Government was 
strengthened by observing the little comparative 
derangement sustained by Scotland under the Joint- 
Stock Banks, by which the monetary concerns of 
that part of the kingdom have been almost exclu- 
sively conducted. Looking to that country as an 
example, it was perhaps natural to conclude that 
what afforded evidence of advantage in one part of 
the kingdom would be equally good for all the rest. 
There is no intention to criticize the Scotch system of 
banking, but were it narrowly examined, it might 
not appear so perfect in all its parts as its many 
warm advocates are inclined to believe. Suffice 
it to say, that it has produced great benefit to 
Scotland, which is a sufficient reason for leaving 
it untouched so long as it commands public 

In precipitating a change in England Ministers 
seem not to have given sufficient attention to 
the real causes which occasioned the failures in 
this country, or the peculiar origin and state of the 


banking interest in Scotland. — The evil of tlie 
system in England had grown up during the period 
of the restriction upon cash payments, and espe- 
cially during the depreciation of the currency 
from 1810 to 1819, when the issues of paper- 
money were governed solely by the extent of 
the demand upon approved securities; and as 
every bank not having more than six part- 
ners had the privilege of issuing notes without 
limit, it is not to be wondered, while such an 
unsound principle of issue was generally approved, 
that banking establishments should have multiplied 
in all parts of the country merely for the profit to 
be obtained from their respective paper mints, 
without paying much, if any, regard to security for 
the eventual payment of their notes either in paper 
of the Bank of England or coin. As the period 
of return to cash payments approached, these 
ephemeral establishments began to disappear, and 
the banking business of the interior assumed a more 
substantial character ; the principal evil suffered 
to remain was the continuance of the privilege to 
the country banks of issuing one and two-pound 
notes after they had been withdrawn by the Bank 
of England. This rendered coin the only means of 


upholding that description of circulation ; and this 
coin, in the event of discredit, could only be 
obtained from the Bank in London. 

Such was the state of the provincial banking 
interest v^hen overtaken by the universal panic 
of 1825. During that eventful period it is true, 
as already stated, that nearly eighty private banks 
suspended their payments ; but it is equally true, 
and perhaps no stronger proof could be afforded of 
the really substantial state of the country banks at 
that time, that a very small portion (it is believed 
not ten) proceeded to bankruptcy. If, therefore, 
due attention had been given by Lord Liverpool's 
administration to the causes which occasioned the 
insolvencies prior to the resumption of cash pay- 
ments, and a little more time had been taken to 
inquire into the real state of the country banks 
in 1825, it is probable that the discredit so 
unjustly thrown upon the system of private 
banking in the annexed correspondence would 
never have been heard of. So far as the opinions 
then expressed were based upon the example 
of Scotland, it is maintained that they were 
founded in error. The two systems were different 
in origin and principle. That of England had 


been formed upon the Bank of England and 
private establishments precluded by Parliament 
from embracing more than six partners, while the 
system of joint- stock banks had ever been the 
main support of the circulation of Scotland. Both 
systems existed w^ith equal advantage to the several 
districts v^^here established — a change in either 
could only be accomplished by competition endan- 
gering the credit and currency of the country. 

In making these observations upon w^hat appears 
to have been an injudicious encouragement given 
to the formation of Joint-Stock Banks in England, 
vi^here adequate banking institutions already existed, 
there is no intention of questioning the propriety of 
sanctioning such establishments in a country dif- 
ferently situated. Banking is one of the principal 
means for promoting the prosperity of a nation, 
and it must consequently alv^ays command the 
vigilant attention of a Government anxious to for- 
vrard the v^^elfare of the various branches of the 
community. As a general principle, it may be 
stated that Joint-Stock Societies are only deserving 
of encouragement when individual capital and en- 
terprise are found deficient. They are peculiarly 
applicable to banking business in an early stage of 


accumulation of property, and before private credit 
is extensively created. Such was the case in Scot- 
land at the time when Joint-Stock Banks began to 
be established in it ; such was also the situation of 
America, and such, too, is now the situation of 
the Canadas. In the interior of Ireland the first 
attempt was made to conduct banking business 
by private capital, supported by the Bank of Ire- 
land, in the same way as^ in England. The situa- 
tion of the two countries was, however, widely 
different, and consequently the private banks of 
Ireland almost totally failed ; which, leaving the 
field open to other agency, occasioned the formation 
of Joint-Stock Banks in their place. In all the 
instances here alluded to, those institutions, if their 
issues of paper and credits be duly regulated, with- 
out which their respective currencies cannot fail to 
be in a frequent state of inconvenient and even dan- 
gerous fluctuation, will continue to prosper; and with 
their own prosperity will tend to promote the public 
and private interests dependent upon them. 

Adverting, therefore, to the mischief which ap- 
pears to have attended the uncalled-for encourage- 
ment given to Joint-Stock Banks in England, while 
the advantage of those bodies is admitted in coun- 


tries differently situated, it becomes the duty of 
Government to bring the subject under the 
consideration of Parliament, and to propose such 
regulations as may check the unlimited formation 
of such institutions hereafter, in places where 
banks already exist, affording every security and 
accommodation which the district may require. 
And further, to regulate the future management 
of those now in existence, in order to guard against 
a recurrence of that excess in the circulating me- 
dium, which on the late occasion neutralized the 
influence of the contraction of the circulation of 
the Bank of England, and occasioned a serious, 
it may be said ruinous, pressure upon the money- 
market. Unless, measures, having those objects in 
view, be adopted with firmness on the part of 
the Government, a repetition of the pressure will 
no doubt recur with increased violence. Earl Spen- 
cer, when Chancellor of the Exchequer, was fully 
aware of the danger to be apprehended from the 
present system ; and the attempt made by his Lord- 
ship at the time of the renewal of the Bank Charter 
to establish regulations for the conduct of Joint- 
Stock Banks of Issue, sufficiently proves that at least 
one member of Government was convinced of the 



necessity of protection being afforded to the public 
against its abuse. So dangerous does the system 
appear, as it now stands, that it becomes question- 
able whether the Bank of England and the bodies 
in question can permanently e.vist together. 

If Ministers be disposed to bring forward reme- 
dial measures, the state of the foreign stock-market 
should not be overlooked. It may perhaps be diffi- 
cult to put any eifectual check upon speculative 
and time-bargains in foreign securities, but there 
can be no reason w^hy they should not be declared 
illegal, and penalties imposed upon such transactions. 
And further, while the transfer of almost every spe- 
cies of property in Great Britain (with the exception 
of the public debt) is subject to a duty, it is but 
equitable that every contract or bargain made for 
passing foreign securities should be chargeable with 
a stamp-duty, and be liable to heavy penalties for 
evasion. The Government of France were long 
since apprised of the dangerous consequences of 
the time-bargains upon the Bourse at Paris, and 
have avoided them by regulations which tend 
almost effectually to put them down. 

In submitting the foregoing facts and obser- 
vations for public consideration, the writer, though 


intimately connected with the management of the 
Bank of England, has no intention to claim any 
undue portion of credit or to evade his fair share 
of the responsibility for the proceedings of that 
body. The Bank has endeavoured to pursue, in 
difficult times and amid conflicting interests, a 
steady course, regardless of the abuse put forth by 
certain writers in the daily press, whose ignorance 
or wilful misrepresentation would be unworthy of 
notice, except for its influence over a portion of the 
public unacquainted with such subjects. Whether 
the Bank of England, as now constituted, be the 
establishment most capable of upholding public 
and private credit, or whether its sphere of action 
should be extended or contracted, are public ques- 
tions. The interest of the public only is to be con- 
sidered ; and decisions taken in that view, and with 
a full knowledge of all the facts and principles 
bearing upon such complicated and difficult sub 
jects, will be sure to meet with the concurrence of 
every individual connected with the Bank, as they 
ought to do with that of every well-wisher to his 

P.S. — Since the foregoing was written, a Letter 

D 2 


has been published, addressed by Colonel Torrens to 
Lord Melbourne. The conclusions having been 
drawn from erroneous premises, they are not deser- 
ving of much notice. It may be sufficient to state that 
the average amount of the circulation of the Bank on 
the 28th December, 1833, w^as £18,200,000, and not 
£17,469,000, as stated in the Letter; and further, 
that the conclusions ought to have had reference 
to the period v^^hen the drain of bullion com- 
menced — the 1st October, 1833, w^hen the average 
circulation was £19,800,000, and the bullion 
£10,900,000. With respect to the observations 
made upon the deposits of the Bank, it is evident 
that Colonel Torrens does not understand the 
nature of that portion of them which bears the 
character of Circulation. Having already said 
every thing which appears requisite by way of 
explanation upon that subject in the present tract> 
it is unnecessary to offer any further observations 
upon it. 

Copy of the communications from the Treasury to 
the Bank of England in the year 1 826, and of the 
Ansiver of the Bank thereto, relating to the provi- 
sions of the Bill, then in progress through Parlia- 
ment, for the Regulation of Banking Companies in 

Pit a Court of Directors at tlie Bank, Friday, 20th Janu- 
ary, 1826. 

The Governor laid before the Court the following Letter from 
the First Lord of the Treasury and the Chancellor of the Ex- 
chequer, with the Paper therein referred to, viz. : — 

** Fife-House, 
" Uth January, 1826. 
" Gentlemen, 
*' We have the honor of transmitting to you herewith a 
*' paper containing our views upon the present state of the 
" Banking system of this Country, with our suggestions there- 
** upon, which we request you will lay before the Court of 
*' Directors of the Bank of England for their consideration. 
" We have the honor, &c. 
(Signed) " Liverpool, 

" Fred. John Robinson." 
" To the Governor and Deputy-Governor 
" of the Bank of EnglandJ' 


'' The Panic in the money-market having subsided, and the 
pecuniary transactions of the country having reverted to their 
accustomed course, it becomes important to lose no time in 
considering whether any measures can be adopted to prevent the 
recurrence in future of such evils as we have recently expe- 

'* However much the recent distress may have been aggravated 
in the judgment of some by incidental circumstances and parti- 
cular measures, there can be no doubt that the principal source 
of it is to be found in the rash spirit of speculation which has 
pervaded the country for some time, supported, fostered, and 
encouraged by the Country Banks. 

** The remedy therefore for this evil in future must be found 
in an improvement in the circulation of country-paper ; and the 
first measure which has suggested itself to most of those who 
have considered the subject, is a recurrence to a gold circulation 
throughout the country, as well as in the metropolis and its neigh- 
bourhood, by a repeal of the Act which permits Country Banks 
to issue One and Two Pound notes until the year 1833, and by 
the immediate enactment of a prohibition of any such issues at 
the expiration of two or three years from the present period. 

'* It appears to us to be quite clear that such a measure would 
be productive of much good ; that it would operate as some 
check upon the spirit of speculation and upon the issues of 
Country Banks; and whilst, on the one hand, it would diminish 
the pressure upon the Bank and the metropolis, incident to an 
unfavourable state of the exchanges, by spreading it over a wider 
surface, on the other hand it would cause such pressure to be 
earlier felt, and thereby insure an earlier and more general adop- 
tion of the precautionary measures necessary for counteracting 
the inconveniences incident to an export of the precious metals. 
But though a recurrence to a gold circulation in the country, for 
the reasons already stated, might be productive of some good, 
it would by no means go to the root of the evil. 


** We have abundant proof of the truth of this position in the 
events which took place in the spring of 1793, when a convul- 
sion occurred in the money-transactions and circulation of the coun- 
try more extensive than that which we have recently experienced. 
At that period nearly a hundred Country Banks were obliged to 
stop payment, and Parliament was induced to grant an issue of 
Exchequer-Bills to relieve the distress; yet in the year 1793 
there were no One or Two Pound notes in circulation in England 
either by Country Banks or by the Bank of England. 

'* We have a further proof of the truth of what has been 
advanced in the experience of Scotland, which has escaped all 
the convulsions which have occurred in the money-market of 
England for the last thirty-five years, though Scotland during the 
whole of that time has had a circulation of One Pound notes ; 
and the small pecuniary tiansactions of that part of the United 
Kingdom have been carried on exclusively by the means of such 

** The issue of small notes, though it be an aggravation, cannot 
therefore be the sole, or even the main cause of the evil in 

" The failures which have occurred in England, unaccompanied 
as they have been by the same occurrences in Scotland, tend to 
prove that there must have been an unsolid and delusive system of 
banking in one part of Great Britain, and a solid and substantial 
one in the other. 

" It would be entirely at variance with our deliberate opinion, 
not to do full justice to the Bank of England as the great centre 
of circulation and commercial credit. 

" We believe that much of the prosperity of the country for the 
last century is to be ascribed to the general wisdom, justice, and 
fairness of all its dealings ; — and we further think that during a 
great part of that time it may have been in itself and by itself 
fully equal to all the important duties and operations confided to 


it ; but the progress of the country during the last thirty or forty 
years in every branch of industry, in agriculture, manufactures, 
commerce, and navigation, has been so rapid and extensive, as to 
make it no reflection upon the Bank of England to say that the 
instrument which by itself was fully adequate to former transac- 
tions, is no longer sufficient without new aids to meet the de- 
mands of the present times. 

** We have to a considerable degree, the proof of this position 
in the very establishment of so many Country Banks. 

^' Within the memory of many living, and even of some of 
those now engaged in public affairs, there were no Country 
Banks except in a few of the great commercial towns. 

'* The money transactions of the country were carried on by 
supplies of coin and bank-notes from London. 

" The extent of the business of the country and the improve- 
ment made from time to time in the mode of conducting our 
increased commercial transactions, founded on pecuniary credit, 
rendered such a system no longer adequate, and Country Banks 
must have arisen, as in fact they did arise, from the increased 
wealth and new wants of the country. 

*' The matter of regret is, not that Country Banks have been 
suffered to exist, but that they have been suffered so long to 
exist without controul or limitation, or without the adoption of 
provisions calculated to counteract the evils resulting from their 
improvidence or excess. 

" It would be vain to suppose that we could now by any act of 
the Legislature extinguish the existing Country Banks, even if 
it were desirable, but it may be within our power gradually at 
least to establish a sound system of banking throughout the coun- 
try, and if such a system could be formed, there can be little 
doubt that it would ultimately extinguish and absorb all that is 
objectionable and dangerous in the present banking establishments. 

** There appear to be two modes of attaining this object. 


" First — That the Bank of England should establish branches 
of its own body in different parts of the country. 

** Secondly — That the Bank of England should give up its 
exclusive privilege as to the number of partners engaged in 
banking, except within a certain distance of the metropolis. 

" It has always appeared to us, that it would have been very 
desirable that the Bank should have tried the first of these plans 
— that of establishing Branch Banks upon a limited scale. 

•' But we are not insensible to the difficulties which would have 
attended such an experiment, and we are quite satisfied that it 
would be impossible for the Bank under present circumstances to 
carry into execution such a system to the extent necessary for 
providing for the wants of the country. 

" There remains therefore only the other plan— the surrender 
by the Bank of their exclusive privilege as to the number of 
partners beyond a certain distance from the metropolis. 

*' The effect of such a measure would be the gradual establish- 
ment of extensive and respectable banks in different parts of the 
country, some perhaps with charters from the Crown, under 
certain qualifications, and some without. 

" Here we have again the advantage of the experience of Scot- 

" In England there are said to be between eight and nine hun- 
dred Country-Banks, and it is no exaggeration to suppose that a 
great proportion of them have not been conducted with a due 
attention to those precautions which are necessary for the safety 
of all banking establishments, even where their property is more 
ample. When such banks stop, their creditors may ultimately 
be paid the whole of their demands, but the delay and shock to 
ciedit may in the meantime involve them in the same difficulty, 
and is always attended with the greatest injury and suffering in 
the districts where such stoppages occur. If this be the case 


*' In point of profit, would they lose anything by it for which 
they are entitled to demand compensation ? 

" It is notorious that at the present time their Notes circulate 
in no part of England beyond the metropolis and its neighbour- 
hood, except in Lancashire, and perhaps for that district some 
special provision might be made. 

** But as it is the interest, so it has been and ever will be the 
endeavour of the Country Banks to keep the Bank of England 
Notes out of circulation in those parts of the kingdom where 
their own circulation prevails. In this they must always be suc- 
cessful whilst public credit continues in its ordinary state and the 
exchanges not unfavourable to this country. The consequences 
are, that in such times the Bank of England becomes in a man- 
ner the sole depositaiy for gold, and in times of an opposite 
tendency the sole resort for obtaining it : that at one period their 
legitimate profit is curtailed by an accumulation of treasure be- 
yond what would be required by a due attention to their own and 
private safety as a Banking Establishment ; and at another period 
they are exposed to demands which endanger that safety and 
baffle all the ordinary calculations of foresight and prudence. 

" If then the Bank of England has no country circulation, 
except in the county above-named, the only question for them 
to consider is, whether on the ground of profit as well as security 
to themselves, the existing country circulation shall or shall not 
be improved, 

** With respect to the extension of the term of their exclusive 
privileges in the metropolis and its neighbourhood, it is obvious 
from what passed before, that Parliament will never agree to it. 

" Such privileges are out of fashion, and what expectation can 
the Bank under present circumstances entertain that theirs will 
be renewed. But there is no reason why the Bank of England 
should look at this consequence with dismay. They will remain 
a chartered corporation for carrying on the business of banking. 


where the solidity of the bank is unquestionable, what must it be, 
as too often happens, when they rest on no solid foundation ? 

" In Scotland there are not more than thirty banks, and these 
banks have stood firm amidst all the convulsions in the money- 
market in England, and amidst all the distresses to which the 
manufacturing and agricultural interests in Scotland as well as in 
England have occasionally been subject. 

*' Banks of this description must necessarily be conducted 
upon the general, understood, and approved principles of banking. 

" Individuals are from the nature of the institutions pre- 
cluded from speculating in the manner in which persons engaged 
in Country and even London Banks speculate in England. 

** If the concerns of the country could be carried on without 
any other bank than the Bank of England, there might be some 
reason for not interfering with their exclusive privileges ; but the 
effect of the law at present is to permit every description of bank- 
ing, except that which is solid and secure. 

" Let the Bank of England reflect on the dangers to which it 
has been recently subject, and let its Directors and Proprietors 
then say, whether for their own interest such an improvement as 
is suggested in the banking system is not desirable and even 

** The Bank of England may, perhaps, propose, as they did 
upon a former occasion, the extension of the term of their ex- 
clusive privileges as to the metropolis and its neighbourhood 
beyond the year 1833, as the price of their concession. 

" It would be very much to be regretted that they should re- 
quire any such condition. 

*' It is clear that in point of security, they would gain by the 
concession proposed to them, inasmuch as their own safety is now 
necessarily endangered by all such convulsions in the country 
circulation as we have lately and formerly witnessed. 


Jn that character they will, we trust, always continue to be the 
sole Bankers of the State ; and with these advantages, so long as 
they conduct their affairs wisely and prudently, they always must 
be the great centre of banking and circulation. 

*• Theirs is the only establishment at which the dividends due 
to the public creditor can by law be paid. 

" It is to be hoped, therefore, that the Bank will make no 
difficulty in giving up their exclusive privileges, in respect to the 
number of partners engaged in banking as to any district 
miles from the metropolis. 

** Should the Bank be disposed to consent to a measure of this 
nature in time to enable the Government to announce such a 
concession at the opening of Parliament, it would afford great 
facilities to the arrangement which they may have to propose for 
insuring the stability of private credit on which the support of 
public credit and the maintenance of public prosperity is ma- 
terially and closely involved." 

The Court having taken into consideration the important paper 
received from the First Lord of the Treasuiy and the Chancellor 
of the Exchequer, 


That, however essentially they may differ on certain views 
and sentiments therein laid down and expressed, it is not for the 
Court, at the present moment, to offer any opinions of their own, 
the paper appearing to be intended as declaratory of the grounds 
on which His Majesty's Ministers have come to the determination 
to require the Bank to give up its exclusive privilege as to the 


number of partners engaged in banking, except within a certain 
distance of the metropolis. 

It cannot, however, be considered inconsistent with this for- 
bearance to state the apprehensions of the G)urt of Directors, 
that confidence is not so fully restored as Lord Liverpool and the 
Chancellor of the Exchequer seem to imagine. 

Though the Panic has subsided, credit, both public and private, 
remains in a very uncertain and anxious state. 

That the country circulation is in many parts extremely de- 
fective cannot be controverted, and the Bank would very reluc- 
tantly oppose itself to any measures tending to ameliorate it, 
but would be glad to promote that object either by fresh exertions 
on their part, should such be found applicable, or by any reason- 
able sacrifice. 

Under the uncertainty in which the Court of Directors find 
themselves with respect to the details of the plans of Govern- 
ment, and the effect which they may have on the interests of the 
Bank, this Court cannot feel themselves justified in recom- 
mending to their proprietors to give up the privilege which they 
now enjoy, sanctioned and confirmed as it is by the solemn Acts 
of the Legislature. 

At a Court of Directors at the Bank, on Wednesday, 
25th January, 1826. 

The Governor laid before the Court the following paper from 
the First Lord of the Treasury and the Chancellor of the Exche- 
quer, viz. : — 

** The First Lord of the Treasury and the Chancellor of the 


^' Exchequer have duly considered the answer of the Bank, of 
'* the 20th inst. 

" They cannot but regret that the Court of Directors should 
" have declined to recommend to the Court of Proprietors, the 
" consideration of the paper delivered by the First Lord of the 
** Treasury and the Chancellor of the Exchequer to the Governor 
^* and Deputy Governor of the Bank, on the 1 3th inst. 

" The statement contained in that paper appears to the First 
" Lord of the Treasury and the Chancellor of the Exchequer so 
*' full and explicit on all the points to which it relates, that they 
" haye nothing further to add — although they would have heen, as 
" they still are, ready to answer, as far as possible, any specific 
" questions which might be put for the purpose of removing 

*' * the uncertainty in which the Court of Directors 

" * state themselves to be with respect to the details of 

" * the plan suggested in that paper,' 

" After all, the simple question for the Bank to consider is, 

" whether they are willing to relinquish their exclusive privilege 

" as to the number of partners engaged in banking, at a certain 

" distance from the metropolis. 

*' The First Lord of the Treasury and the Chancellor of the 
" Exchequer are satisfied that the profits of the Bank would in 
*' no degree be affected by their consenting to such a proposaL 
** Convinced of this, and that its adoption by the Bank is as im- 
** portant to their own security as to that of the public, it does not 
** appear that the Bank can be equitably entitled to claim any 
" compensation for the surrender of this privilege of their 
** Charter. 

" Against any proposition for such compensation the First Lord 
" of the Treasury and the Chancellor of the Exchequer formally 
" protest, but if the Bank should be of opinion that this conces- 
* sion should be accompanied with other conditions, and that it 


" ought not to be made without them, it U for the Bank to bring 
" forward such conditions. 
" Fife House, 

** 23rd January, lS26r 

Thursday f 26th January, 1826. 
The Governor laid before the Court the following minutes of 
the Committee of Treasury, viz : 

** Committee of Treasury j 
" 25th January, 1826. 
" The Committee of Treasury having taken into consideration 
'* the paper received from the First Lord of the Treasury and the 
" Chancellor of the Exchequer dated 23rd Januaiy, 1826, and 
" finding that His Majesty's Ministers persevere in their desire to 
** propose to restrict immediately the exclusive privilege of the 
" Bank as to the number of partners engaged in banking to a 
*' certain distance from the metropolis, and also, continue to be 
" of opinion that Parliament would not consent to renew the pri- 
*' vilege at the expiration of the period of their present charter; 
*' finding also that the proposal by the Bank of establishing branch 
'' banks is deemed by His Majesty's Ministers inadequate to the 
'* wants of the country, — are of opinion that it would be desirable 
'* for this Corporation to propose as a basis the Act of the 6 Geo. 
•* IV. cap. 42, which states the conditions on which the Bank of 
" Ireland relinquished its exclusive privilege, this Corporation 
" waiving the question of a prolongation of time, although the 
" Committee cannot agree in the opinion of the First Lord of the 
" Treasury and the Chancellor of the Exchequer that they are 
*' not making a considerable sacrifice, adverting especially to the 
*' Bank of Ireland remaining in possession of that privilege five 
" years longer than the Bank of England." 


That the foregoing recommendation of the Committee of Trea- 
sury be agreed to, and that the Governor and Deputy Governor 
be requested to lay it before the First Lord of the Treasury and 
the Chancellor of the Exchequer. 

Tuesday^ 31 s^ of January ^ 1826. 
The Governor laid before the Court the following paper from 
the First Lord of the Treasury and the Chancellor of the Exche- 
quer, viz : 

**The First Lord of the Treasury and the Chancellor of the 
" Exchequer have taken into consideration the paper delivered to 
** them by the Governor and Deputy Governor of the Bank, on 
" the 27th inst. 

" They think it right to lose no time in expressing their con- 
" currence in the proposition which has been sanctioned by the 
" Court of Directors as to the exclusive privilege of the Bank 
** of England, and are willing to agree that the two clauses in- 
** serted in the Irish Act of last year, and referred to in the paper 
** communicated by the Governor and Deputy Governor on the 
** 27th instant, shall be inserted in the Bill which will be neces- 
** sary to give effect to the new arrangement. 

" The First Lord of the Treasury and the Chancellor of the 
" Exchequer cannot conclude without adverting to that part of 
" the paper of the Bank which respects branches of the Bank of 
" England. 

** In their paper of the 13th of January, the First Lord of the 
" Treasury and the Chancellor of the Exchequer have stated the 
" reasons why they are of opinion that under all the present 
" circumstances the establishment of branches of the Bank of 
** England would not of itself be sufficient to meet all the exigen- 


" cies of the country, but they are so far from wishing to dis- 
" courage the establishment of such branches that they are 
" decidedly of opinion that the formation of them under proper 
*' regulations would be highly advantageous both to the Bank and 
" to the community. 
** Fife House, 

** 2Sth of January, 1826." 


That this Court is of opinion, after the fullest consideration, 
that it is advisable to accede to the proposition contained in the 
papers laid before the Court on the 25th and 26th instant, and 
this day, and now read, in case the sarde shall meet with the 
approbation of the Court of Proprietors. 








HG Palmer, John Horsley 

93B The causes and consequences 

P25 of the pressure upon the money-